Dr. Peter Bacon:

I am glad the Senator asked me that question. We must remember the circumstances of the time. It was 1998-99 and a time of Ireland's near-term accession to the euro. Markets were anticipating that, upon Ireland joining the euro, there would be no currency risk between the Irish punt and the euro. This meant that Irish interest rates would converge to euro rates, by which was meant German interest rates. That assumed there would then be capital inflows and arbitrages, which there were. There was increased competition between financial institutions to gain a share of the housing market and, with the undoubted slippage in the application of income criteria, there was a reversal of the slamming of the brakes on investment demand and when that occurred Ireland was in the euro. There was no exchange risk, there were European banks with surplus funds and Irish banks with an opportunity to lend funds. Guess what happened? The brake on speculative and genuine investment demand was removed.